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Dow-30 Earnings: The Walt Disney Company – Fourth Quarter Fiscal 2013

Entertainment and media conglomerate Walt Disney (DIS – Free Disney Stock Report) reported solid fiscal fourth-quarter and full-year results (year closed on September 28, 2013). Earnings came in about 8% ahead of the year-earlier figure, at $3.38 a share for 2013, but two pennies below our estimate. Revenues climbed 7% for the full year.

The company posted profit gains at all but its Studio Entertainment segment (discussed below). Disney reported the largest year-over-year increase (60%) at its smallest business unit, Interactive. Plus, earnings from Parks & Resorts and Consumer Products both grew at an upper-teen clip in 2013. Lastly, its Media Networks' profits increased a more modest 3%.

The movie segment was hard hit by a decrease in home entertainment results. Additionally, the studio wrote down a hefty loss from the poorly performing Lone Ranger release. But film impairments were comparable to the loss registered from the 2012 box-office failure John Carter. On the other hand, Marvel benefited from back-to-back blockbusters, Iron Man 3 and the Avengers sequel.

We look for some improvement in its movie production business going forward. The media conglomerate will be teaming up with Netflix for a series of original live-action shows featuring Marvel super heroes. Additionally, the company announced a release date for the next installment of the Star Wars franchise, with the Jedi slated to return to theaters on December 18, 2015. However, investors had expected the film to come out in the summer of 2015 and appeared dismayed that the movie was being pushed back from fiscal 2015 to fiscal 2016. But overall investors appeared fairly pleased with the earnings release, and the stock climbed slightly in response.

Parks & Resorts should also be a key revenue driver, in our opinion. Higher ticket prices and guest spending are boosting results at this segment. Disney has invested heavily in its vacation venues over the past couple of years, and its 2014 budget will likely be $1 billion higher than its outlay last year, owing to the development of Disneyland Shanghai (which is scheduled to open in late 2015).

Disney has also increased its share-buyback program. The company purchased approximately $1 billion in fiscal 2013, and plans to earmark between $6 billion and $8 billion toward buybacks next year. Looking ahead, the media conglomerate may consider also rewarding shareholders through dividend hikes.

Meanwhile, we expect the Mickey Mouse pioneer to continue to leverage its strong brand equity. The company should strategically invest in new technologies to benefit its growing Interactive segment and complementing other parts of its business, as mobile consumption continues to rise. These stronger revenue streams ought to help offset hefty operating expenses and other margin pressures. All told, we look for earnings to advance 15% in the coming year, and we are maintaining our fiscal 2014 bottom-line estimate of $3.90 a share.

About The Company: The Walt Disney Company operates Media Networks such as ABC and ESPN, and Studio Entertainment. Its world famous parks and resorts include Disneyland, Walt Disney World (Magic Kingdom, Epcot, and Disney’s Hollywood Studios), while the company earns royalties from Tokyo Disneyland and manages Disneyland Resort Paris and Hong Kong Disneyland. It also operates a cruise line and Consumer Products and Interactive Media segments. ABC was acquired in February, 1996, Pixar in May, 2006, and Marvel in December, 2009.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.